This paper addresses the following problem: How can social policies be used to enhance social capacities for economic development without, in the process, eroding the intrinsic values of the social ends that policy makers purport to address? The paper argues that this requires rethinking social policy away from its conception as a residual category of “safety nets” that merely counteract policy failures or developmental disasters. Social policy should be conceived as involving overall and prior concerns with social development, and as a key instrument that works in tandem with economic policy to ensure equitable and socially sustainable development.

A number of factors have contributed to a revival of interest in social policy in the context of development:

• The rediscovery of poverty in national and international policy discourse.• The realization that it is not a biologically given, but instead a socially constructed capacity or potential resulting from deliberate investment in human capital or institutional arrangements, that determines the participation of individuals from different social groups in labour markets. • The revival of interest in growth economics and the emergence of so-called “new growth theories”, which recognize that social development contains crucial instruments for economic development. • An interest in social equity, both as an instrument for the promotion of growth and as an end in itself.• An interest in social security, in light of the greater economic volatility of economies in the context of globalization and the greater vulnerability of ever-larger groups of people. • The historical lessons of the importance of social policy in the “late industrializers”.

The impact of globalization on social policy is a central preoccupation in both developed and developing countries. Globalization affects social policy both at the normative level and in a more practical way, by setting constraints (fiscal and trade) that social policy must be attentive to. Related to this is the growing provision of social services by transnational actors—aid donors, non-governmental organizations and transnational corporations. Under this new policy thrust, the role of the state is to provide “an enabling environment” for private provision while reducing its own expenditures and activities in the social sector.

The identification of a number of old and new arguments for the case that social policy can work in tandem with economic policy to lead to socioeconomic progress, and the recognition of the productivity-enhancing quality of measures that contribute to social development do not necessarily lead to their adoption. There are many impediments to the translation of new insights into policy measures. The first of these is the persistence of economic policy making based on a “leader/follower” model, where macroeconomic policy is determined first and social policy is left to address the social consequences. The second impediment relates to unresolved theoretical and empirical issues. The third, and probably more recalcitrant, impediment is political and ideological. Social policies are the outcomes of political bargains and conflicts. Consequently, the study of social policies in developmental contexts must be sensitive to the political contexts within which they are formulated and implemented.

There is a need for context-sensitive research on the links between macroeconomic performance and the fundamental goal of raising human welfare. There is also a clear need to bridge the hiatus between theoretical and empirical findings and social policy making, and between means and ends. The paper thus argues for the necessity of research that brings together such diverse strands of analysis and encourages more explicit consideration of their policy implications in different political, economic and social settings.